AAPL en fuego

They created a margin bubble with the iPhone, which will be really hard to repeat. End of story. Those stockholders who didn't see the writing on the wall paid for it, from $700 to $400 per share, just another bubble, and Apple is just another company competing in the wild now. They will continue to be insanely profitable, but their growth in EPS is another story.

You don't know what you're talking about.

They created an 'umbrella', under which lower priced competitors could thrive, and they ignored key market niches (5", for example, or prepaid). The bubble you are talking about doesn't need to be repeated, and as you imply is unsustainable.

The share price has nothing to do with reason or rationality; look at Apple's P/E of 9.96 and compare it to Microsoft's P/E of 16.38 or Google's of 23.86 and tell me that is reasonable!

Their growth in EPS is slowing down, that is not questioned, but their current EPS should trivially support a share price of $700, or we should be seeing the GOOG and MSFT bubbles bursting too as their P/E drops to single digit as well.

Upcoming Q3 sales are likely to continue to be soft, just like previous years. But the current results indicated demand is stable. even if Apple just muddles along like the current quarter with no huge killer products released. Judging by current results sales will be fine.

There have been 350,000,000 iPhones sold. I'm not sure how many of those are still active accounts. This Jan Tech Crunch article indicates about 150 million active iPhone accounts. http://techcrunch.com/2013/01/04/how-ma ... book-have/ That's a lot of potential upgrades, not counting growth in smart phone market.

Apple indicates no new products until Fall. Fall officially begins September 22nd. So Apple could release the next iPhone in Q4 (which ends at the end of September).

I think the drop in AAPL was smart money/investors/hedgies positioning prior to typical Q2/Q3 quarterly softness. We'll see the same inexplicable run up in reverse as that smart money positions itself for the huge results in Q4 and especially the holiday blockbuster Q1 2014.

There's still plenty of room for Apple to grow iPhone sales, provided the release isn't bungled, and I've seen no cause to think it will be.

The 100 year p/e average of the Dow is 15. During the .com bubble, it got up to 44.

Apple's trailing p/e is 9.46. Apple's forward P/E is 9.43.

AAPL's ex-cash PE is so low it's ridiculous.

I ascribe to the economic theory that the market _wants_ to be efficient, but it's distorted by humans . So, over the longish run, AAPL's price will reflect its fundamentals, which currently are very, very good. I read incredibly stupid headlines such as Why is Apple’s iPhone Selling at a Snail’s Pace? when the article itself shows Apple shipped 37.4 million iPhones in March cf 35.1 million in the year ago quarter. The growth rate is lower than we've grown accustomed to, but the sales rate is still extraordinary.

The key problem with stupid humans is they assume one quarter's results predict the future indefinitely. So Apple grows earnings by 90% YOY one quarter, and some 22-yr-old analyst's Excel sheet projects that, at 90% growth every year, Apple will soon be the entire galactic economy, with the physical volume of iPhones sold creating a sphere, the surface of which expands outward from earth faster than the speed of light. Therefore he projects a fair price of $1,200/share.

Then Apple has a hiccup and shows negative growth for a quarter, and some analyst shows that X^(n<1) means that Apple will eventually shrink to zero and that Tim Cook has begun channeling Steve Ballmer, and thus a fair price is $200.

Did Apple show some incredible growth numbers last year? Yes. Is growth slowing relatively to last year? Yes. Has the intrinsic value of Apple gone up by 100% and then down by 40% in that same period? I don't believe that's true, but I'm only one of many stupid humans playing this game.

For me, I believe AAPL is tremendously undervalued right now. With an ex-cash PE of somewhere around 6-7x, it means Apple is returning 14%-16% cash on cash, even if it doesn't grow at all. And I don't believe for a minute that Apple is done growing. I still see friends and family buying iPhones and iPads for the first time, and I see many fewer people switching from Apple to Android.

So perhaps AAPL has a fair value of $600, plus or minus $150 for market irrationality

I'm holding what I've got, but if we see $600 I'm going to take a big chunk off the table and redo the kitchen.

I'm holding what I've got, but if we see $600 I'm going to take a big chunk off the table and redo the kitchen

.When AAPL hits $600, you'd probably do better to take out a loan to redo your kitchen. Interest rates are likely to still be low by then, and with Apple's stock repurchase plan combined with dividend increases, AAPL will likely return more than the interest on the note.

It's all about whether you believe in Apples's forward earnings predictions, and if you predict they can surprise the market with a new high margin offering. Some do, some don't, thus the stock price. Being a highly profitable slowly growing high yield stock is not such a bad thing.

It's all about whether you believe in Apples's forward earnings predictions, and if you predict they can surprise the market with a new high margin offering. Some do, some don't, thus the stock price. Being a highly profitable slowly growing high yield stock is not such a bad thing.

Irrational fear based selling took the stock down. Not surprised to see rapid run back up, but absent any compelling story (e.g. New product) I think it'll be a series of random swings drifting higher for a while. /tea leaves.

@dh87: I don't know. The players in the market are irrational (ie, people), so I don't know that there is a good explanation. There was no good explanation for the sell to $400 price, either, given their phenomenal amounts of cash, earnings, and mindshare.

Did you guys also notice the distinct change in tone of the Apple v. Samsung stories circulating over the weekend and today? Like Android has peaked or the Galaxy IV being poorly made. Of course, some negativity is Samsung's own fault

@dh87: I don't know. The players in the market are irrational (ie, people), so I don't know that there is a good explanation. There was no good explanation for the sell to $400 price, either, given their phenomenal amounts of cash, earnings, and mindshare.

Some of the highest volumes in the last ninety days have been in the last two weeks. Not sure what to make of it, re Apple buying AAPL or Wall Street buying AAPL. There are times when I become more convinced than ever that what goes on with AAPL, both in terms of the six to eighteen month sliding-window stock price, and in terms of the bullshit "news" items posted in the bought-and-paid-for blogosphere, is all decided at some very expensive lunch rooms in New York. But hey, wannabe Marxists like me shouldn't even be dabbling in stocks.

What kind of Marxist are you? Capitalism has been very effective at both taking power away from people as well as providing them the means to production (unlike communism which has only been effective at taking power away from the people).

What kind of Marxist are you? Capitalism has been very effective at both taking power away from people as well as providing them the means to production (unlike communism which has only been effective at taking power away from the people).

He didn't say he was a Communist though.

I wonder if the alleged iOS UI revision (9 to 5 Mac story) to something more modern will have any impact on sales. It's been increasingly obvious how dated iOS was and while there's a segment of the population that doesn't care, or liked the skeuomorphic design I think a fresh iOS could influence more trendsetters to adopt the iPhone again. It's just unfortunate it's taken Apple so long to get here, Ive's skin must have crawled to see his beautiful minimalist designs cluttered with some of the UI design Apple churned out.

If I was Ive I'd hang out places like pinteret's flat-ui group and poach promising designers.

I wonder if the alleged iOS UI revision (9 to 5 Mac story) to something more modern will have any impact on sales.

Not by itself, but in tandem with other developments (both HW/price component-based and alongside significant UI evolution), it will definitely help.

AAPL is currently in the midst of a rather foolish "Apple's era of innovation is over" miasma, due to a couple of areas that they're lagged in, and/or not moved as adroitly as they should have, paired with anxiety (which becomes further fueled by Apple's lack of transparency and able manipulators), and unreasonable expectations. My bet: as the media and investors realize how baseless this notion is, the stock will recover. Growth for the time being has slowed (as it had to, at some point), but both the company, ecosystem, and overall position remain very strong.

What kind of Marxist are you? Capitalism has been very effective at both taking power away from people as well as providing them the means to production (unlike communism which has only been effective at taking power away from the people).

They need to start updating their professional machines more frequently and staying price competitive across a wider swath of the market.*

*My opinion as a user, not an investor. I need a new damned machine! I'd like them to sell machines that are less expensive without being crippled in some way. Expand the market of Mac users, and not just through the idevices.

Basically, the idea is that the stock experiences such wild fluctuations for such a huge stock. Each time it dipped to a new low over the past several years, it then rocketed back even further to a new all-time high. Like pulling back on a slingshot and then releasing it.

It just takes a strong stomach to hold on.

With the stock on a strong run the past week, I wonder: Are we seeing the latest Apple slingshot?

...snip..

When the stock began trading on Wednesday, it bounced between big gains and big losses initially as indecisive investors seemed to battle each other to determine whether what they heard was good news or bad. But eventually, the stock settled and restarted the climb it began Monday, before earnings were announced.

The question investors must now face: Is this this beginning of a trend that could get the stock anywhere near, or even past, the $702.10 peak it reached last September?

Long-term: almost no question. Short-term: harder to tell. iPhone sales might be in for a bit of soft patch if they don't get an update before the fall, competing against the S4 (which I expect to be an enormous, iPhone-size hit, despite the so-so reviews).

I wonder if it's just a classic case of more information being better than less.

The news on the product pipeline was actually not good, at least from the standpoint of the We-Need-New-Shit-Now froth that the blogosphere had worked itself into.

But what was good, really good, is that Cook made an actual declarative statement with an actual timeline, regarding new product. (The Fall and into 2014.) That is way better than the lame, subjective "I feel good about our pipeline" stuff he'd relied on in the past.

By committing publicly to an objective time-frame, Cook gave the Street the cover they need to start buying back in. The Street can tell their clients "Now is the time to buy low, before the new stuff comes out".

I wonder if it's just a classic case of more information being better than less.

The news on the product pipeline was actually not good, at least from the standpoint of the We-Need-New-Shit-Now froth that the blogosphere had worked itself into.

It wasn't bad either; it was neutral, meaning that 'nothing will change in the near future so you can plan around it'.

Quote:

But what was good, really good, is that Cook made an actual declarative statement with an actual timeline, regarding new product. (The Fall and into 2014.) That is way better than the lame, subjective "I feel good about our pipeline" stuff he'd relied on in the past.

By committing publicly to an objective time-frame, Cook gave the Street the cover they need to start buying back in. The Street can tell their clients "Now is the time to buy low, before the new stuff comes out".

That's entirely too rational

It means, however, that sales will continue to follow the same pattern as last year which means so too will earnings etc so far as no one disrupts the market (least of all Apple).

Long-term: almost no question. Short-term: harder to tell. iPhone sales might be in for a bit of soft patch if they don't get an update before the fall, competing against the S4 (which I expect to be an enormous, iPhone-size hit, despite the so-so reviews).

I'm thinking the S4 might actually underperform compared to the S3 (which already was a huge iphone sized hit). No doubt it has a lot of impressive specs (that I'd like to see Apple match someday soon) but it's more expensive and from all accounts feels cheap. And Samsung has taken a few PR hits recently, not to mention their embarrassing product rollout "extravaganzas". Of course we won't actually know as they don't release sales numbers, but I think we'll see some S3 people move on to the Note and some other players with more "premium feeling" phones (HTC, Sony) catch up a bit.

I'm thinking the S4 might actually underperform compared to the S3 (which already was a huge iphone sized hit). No doubt it has a lot of impressive specs (that I'd like to see Apple match someday soon) but it's more expensive and from all accounts feels cheap. And Samsung has taken a few PR hits recently, not to mention their embarrassing product rollout "extravaganzas". Of course we won't actually know as they don't release sales numbers, but I think we'll see some S3 people move on to the Note and some other players with more "premium feeling" phones (HTC, Sony) catch up a bit.

I suspect not, but here's hoping. The HTC One deserves some love, it's gorgeous.

See, Samsung's marketing budget is insane, and the Galaxy brand is really strong at this point. It's not just a barrage of ads and marketing and events, it's distribution, spiffs, the whole deal.

I suspect that the observation the Galaxy S4 isn't a very nice design and overall eh product won't have time to sink in. It may hurt them down the road. Or not, who knows.

re S3 being iPhone-sized - not quite, I think? That said, Apple groups all iPhone models together, so hard to tell. Definitely in the ballpark.

I suspect not, but here's hoping. The HTC One deserves some love, it's gorgeous.

See, Samsung's marketing budget is insane, and the Galaxy brand is really strong at this point. It's not just a barrage of ads and marketing and events, it's distribution, spiffs, the whole deal.

I should clarify in this thread that the Android space not being such a Samsung monoculture isn't necessarily a good (or bad) thing as far as Apple is concerned.

There are a few things working against Samsung with the S4. Their competitors have physically nicer products in the Xperia and One. For something you use many times a day and is a bit of a status symbol, that isn't inconsequential. I think with the launch of the S4 and some of the stories circulating (losing the court case, paying people to smear rivals, etc.) some of the luster is off the brand. A phone made by a company who thinks a second rate rip-off of a mediocre flash-in-the-pan youtube phenom isn't going to be the "cool" phone to have. They've also raised the price $50 which isn't much over the life of a phone it's still $50 more than its rivals. And even loyal S3 owners who wouldn't think of getting another brand are likely to still be under contract for another year.

So yeah, I still expect them to sell a lot of phones but the S3 was spectacularly successful and I could see the S4 underwhelming compared to that.

Apple's bond offering to fund their share buy back was hugely successful with demand for more than the 50 Billion $$$ they were selling...

Largest in history. BIG vote of confidence in Apple, share buy back funded. Interesting to see what happens tomorrow. I had a trader friend who used to say that when the big boys buy in a big way, it actually pulls the market down 'cause they can demand the best prices. Will see what happens. Certainly good news.

The theory behind the bond issue is that it will cost Apple less to do this, than it would to repatriate the earnings that are being held overseas. There is some subtle hint there about the distribution of Apple's cash (or cash equivalent) horde. Sounds like quite a bit of it is overseas.

I do wonder how this works to avoid the tax hit of repatriating all that cash. That's been mentioned several times.

It doesn't, directly. As far as I've been able to figure out, there are a couple of things going on here. First, there isn't enough money in the US already to cover the share buybacks/dividends. If Apple paid for that out of its overseas cash holdings, it would have to bring the money stateside first, paying taxes on it. Instead, it issues debt backed by that overseas cash to pay for the dividends etc., and takes a tax deduction on its interest payments. Second, by keeping its international cash out of the country, Apple can hold out for a repatriation holiday that would let companies bring money back to the US at reduced (or eliminated) tax rates.

My understanding is that the technical traders have been waiting for AAPL to close over 450 to break the down trendline. This seems assured to happen today. The question now appears to be how high and how fast, absent any substantial negative news (and I don't really see any of that on the horizon).

I think 600+ by January is well within the realm of the possible, what with new phones & such in the fall...

Dediu: I’ve written about the perception of decline several times. The quick answer is that as Apple has risen, the number of people who have taken it upon themselves to give commentary on how Apple should improve itself has increased. If the increase in commentary is in proportion to Apple’s sales then it has risen ‘exponentially’.

Similar to the notion that half of all Apple users became Apple users last year then perhaps more than half the comments on Apple are from people who never commented on Apple before. Therefore these new comments come from people who did not observe Apple prior to its most recent ascent. Therefore the current dip in share price is the first they’ve ever observed first-hand. They give it disproportionate significance. I’ve pointed out that there have been massive declines in share price in the last decade. Most of them rooted in forgettable reasoning.

“My rule of thumb is that investors should expect a 40% drop in Apple shares at any time and for no reason. Warren Buffet seems to agree. There can be a long discussion about why that is but I think it suffices to say that there are too many institutional owners, and hence too much concentration of homogeneous thought about the company.”

This seems insightful. Apple shares have been highly volatile for a long time. Personally, I enjoy that because it makes me money.

Put his site, asymco.com, on your daily/weekly visit list. I first starting reading his stuff I dunno, maybe a couple years ago? I think I saw a link to him from this thread.

I like someone like Philip Elmer-DeWitt but Dediu is just smarter than everybody else, at least when it comes to analyzing sales/marketing/strategy in the smartphone space. (And I think PED would agree to that.) The other thing about Dediu is that he runs his site not as some sort of mountain-on-high from which he pronounces the truth, but as a forum for vetting his own research and analysis. IOW, he pays attention to what he doesn't know, keeps an open mind, and learns. Not something we normally see in analysts.